BUSINESS

ETHICS
Principles and Practices

DANIEL ALBUQUERQUE

1
© Oxford University Press
 Contents

Foreword v
Preface vii
To the Instructor xiii
PART ONE
Managers and Morals
Setting Ethical Standards
1. Ethics: Meaning, Case Study: Tipping Point of
Definition, and Scope 6 Ethics on the Glazier 38
Ethics and Morals 7 3. Doctrines, Dogmas, and
Evolution of Ethics 8 Business Management 45
Classification of Ethics 8 Pragmatism and Ethics 46
Application 9 Criticism of Socialism 51
Business Ethics 10 Social Market Economy 54
Nature of Ethics as Moral Value 12 Philosophy of Business 57
Law versus Ethics 16 Case Study: Nandigram Massacre—Symbol of
Case Study: A Matter of Principle 20 People’s Resistance against Acquisition of
2. Eastern and Western Property 63
Ethical Thought and 4. Decision Making:
Business Practices 25 Moral Reasoning and
Universal Norms and Geographically Its Application 71
Different Cultures 26 Understanding Decision Making 72
Suitability of Eastern Values to Western Essence of Decision Making 74
Business 28 Decision-making Process 80
Do Indian Values Hinder Business 31 Classification of Decision Making 84
Progressive Business Dharma 33 Case Study: Kohlberg’s Research Case 93
PART TWO
Managers and Management Areas
Application of Ethical Standards to Business Disciplines
5. Manufacturing: Consumer, Consumer Rights 117
the Ultimate Stakeholder 107 Informed Consumer 120
Duties of the Manufacturer 109 Consumer Politics 120

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xvi Contents
Problems of Politics and
Economics 121
Consumer Privacy 122
Ethical Consumption 123
Classification of Unethical
Consumer Behaviour 124
Building Ethical Consumer
Communities 125
Legal Business versus
Moral Business 127
Case Study: The Giant Nano—Making
History at Birth 130
6. In the Marketplace
Product Positioning and
Competing 139
Packaging, Labelling, and
Launching 141
Pricing and Its Consequences 147
Brand Management Imperatives 153
Business as Usual 158
Unusual Strategies: Integral
Marketing Paradigm 160
Managers and Workplaces
Managing People in the Organization
9. Workers and Morals
Rights and Duties of
Employees 228
Personnel Policies and
Procedures 231
Just Wages 239
Trade Unions 242
Case Study: Cool Dudes
Bunking Work 252
10. The Workplace and
the Individual
Need for Workplace Ethics 256
Professional versus Personal 257
Morality of Informed Consent 260
Workplace Surveillance versus
Privacy 263
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Case Study: Lifebuoy—The Story of
a Soap 162
7. On the Billboard 169
Advertising and Communication
Decisions 171
Exploitative Nature of
Advertising 174
Culture and Ad-Culture 175
Lessons from Nature 177
Serious Problems in Contemporary
Advertising 181
Case Study: The Story of an Adman 184
137
8. Finance and Value 192
Early History of Financial Scams 193
Financial Accounting 194
Financial Standards 197
Responsibility of Financial
Institutions 199
Capital Market and Its Regulator 206
Case Study: Satyameva Jayate—Truth Shall
Prevail 210
PART THREE
226 Health and Safety Hazards 268
Case Study: Consensual SEZ 273
11. The Contemporary Worker 282
Conflict of Interest 283
Whistleblowing 286
Abuse of Official Position 289
Bribe 292
Case Study: Dubey’s Dream 298
12. On-the-Job Problems 307
Discrimination 309
255 Affirmative Action or
Job Reservation 316
Sexual Harassment 320
Manners and Managers 324
Case Study: Vishaka 327
 Contents xvii

PART FOUR
Managers and Corporations
Corporate Citizens: Organizations in the World
13. Corporate Governance 339 15. Corporate Social
Corporation as a Moral Person 340 Responsibility 394
Corporate Governance 343 Understanding CSR 396
Corporate Governance Theories 346 Moral Arguments for CSR 398
Good Corporate Governance 350 Issues in CSR 400
Case Study: Trial of Warren Hastings 355 Development of Corporate Conscience
as Moral Principle of CSR 403
14. Institutionalization of Case Study: Wealth for the People 408
Ethical Governance for
Corporations 365 16. Corporations in the
Emergence of Corporate Geopolitical World 415
Governance Code 367 The Global Picture 417
Development of Indian Economic Justice 420
Corporate Governance 371 Failure to Provide Economic
Assumption of Best Practices 376 Services to Poor 424
Failure of Corporate Corporations as Service Organizations
Governance 382 in a Globalized World Order 429
Case Study: Riddle of Reliance 386 Case Study: The Shrinking Feeling 435

PART FIVE
Managers and the International Community
Challenges of the New Age World

17. Challenges of Environment 450 19. Challenges of Violence 509

Principles of Environmental
Ethics 452
Environmental Challenges as
Business Opportunities 456
Role of the Government 460
Multi-stakeholdership 462
Case Study: Goa 2100 468
18. Challenges of Cyber Age
Information Technology and Its
Moral Significance to Business 483
Data Identity and Security 487
Crime and Punishment 490
Intellectual Property Rights 496
Case Study: Indernet 501
Understanding Global Business 512
Multinationals and Militaries 519
Business and Terrorism 529
Multinational Corporations and
Multinational Responsibilities 534
Case Study: The Game 542
20. Challenges of
481 Unsolved Problems 549
Food, Shelter, and
Clothing Rights 550
Gender Rights 556
Human Rights 559
Animal Rights 565
Case Study: Fowl Industry 570

Select References 578

Index 594

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 CHAPTER

1 Ethics: Meaning,
Definition, and Scope

There are no moral phenomena at all, but only a moral interpretation of phenomena.
—Friedrich Nietzsche
True ethics is Dharma, the right fulfillment and working of the higher nature, and right
action should have right motive, should be its own justification and not go on the
crutches of greed and fear.
—Sri Aurobindo

LEARNING OBJECTIVES
After studying this chapter, you will be able to
Ø Distinguish between ethics and morals
Ø Define business ethics within the confines of ethics
Ø Understand the nature of ethics as moral value
Ø Differentiate between law and ethics

INTRODUCTION
The study of ethics is a systematic science. Its scope encompasses all human relation-
ships in a society. Ethical behaviour in business is an economic relationship with the
people within a society. Hence, it is also called political economy. Business ethics deals
with the study of the problems arising in the relationship between the field of business
and its management. In this chapter, we will deal exclusively with the concept of
ethics. A concept is a mental model or a mental construct. With the mental model of
ethics, we can understand the various other concepts that go into its making. Once the
complex structure of this model is ready, we can execute it just the way architectural
engineers execute blueprints. The task of business ethics is to enable managers to
execute these mental models consistently, contingent on business management situa-
tions. The consistency must be such that it becomes a universal principle or a point of
reference for right or wrong business actions.

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 Ethics: Meaning, Definition, and Scope 7

ETHICS AND MORALS

Let us first try to learn the key terms ‘ethics’ and ‘morals’. Note the linguistic use of the
terms—they seem as if they are in the plural form, just as ‘economics’ or ‘politics’, but we
treat them as singular. Generally, ethics and morals are used as synonyms. There is nothing
wrong in such a usage, for after all, the meanings of all words depend on their common
usage. However, in formal study, we need to understand the meaning of the terms in
a qualified way so as to make our subject of study precise and well defined.

Meaning
The terms ‘ethics’ and ‘morals’ are etymologically, that is, from their very roots or
terms, different. The word moral(s) is derived from the Latin root moralis, which implies
custom. In other words, it refers to a behaviour that is accepted or rejected due to an
accepted social custom. The word ethics stems from the Greek word ethike, which
attributes to a social environment, referred to as ethos or social milieu. This latter
meaning embraces much more than mere custom. It refers to everything that is part
and parcel of society and not just what is allowed or forbidden.
Another point of difference between the two refers to their usage in ordinary
language. For instance, a lawyer defending an alleged rapist would accuse the victim
as ‘morally fallen’ and not as ‘ethically fallen’. On the other hand, a committee that is
formed to probe the behaviour of the members of Parliament would be called ‘ethics
committee’, not ‘moral committee’. The meaning of the word is in its usage. Thus,
both these terms have their unique characteristics.

Usage
However, the terms are intrinsically not different. Both of them refer to the same
reality of human actions, which may be characterized as morally or ethically positive
or negative as the case may be. It may be true that the terms (ethics and morals) sound
different but they refer to the same social reality wherein a certain body of accepted
norms forms a code of conduct in society. The actions of the members are described
as ‘moral’ or ‘ethical’ depending on the linguistic nuances of the meaning in a particular
case as well as on the conventional use of the terms. It is in the use of the words in a
given context that the meaning becomes clear.
In academic usage, however, moral behaviour refers to a concrete behaviour such
as showing respect to elders. Ethics, on the other hand, is used to mean a discipline or
a systematic study of moral behaviour such as justice. People’s behaviour in a society
can be morally characterized in their day-to-day actions. It is in the classroom that we
analyse the ethical significance of these actions.
These terms are generally interchanged with one and the same meaning, that is, to
determine whether some human action is right or wrong. They deal with the application
of a socially accepted code of conduct. This conduct may be termed as either moral
conduct or ethical conduct.

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8 Business Ethics

EVOLUTION OF ETHICS
Social conduct has evolved along with the evolution of society. When your elders tell
you ‘Do not cheat’, they are referring to a social code of conduct. Social conduct has
developed in society over hundreds of years. The codes of conduct have been passed
down from generation to generation, and there is a pattern to the evolution of such
codes. Acceptable behaviour is promoted and elevated as a social value, and
unacceptable behaviour is rejected and condemned. In ancient India, there was no
moral problem with the custom of sati—immolating the wife on the funeral pyre of
the deceased husband. But society has evolved humanely and has condemned the act
as unacceptable and morally reprehensible.
The laws of a country are based on the customs or moral codes of its society. Penalties
are prescribed for bad actions—actions that contradict the established laws. The laws
are a measure against those people who cross the limits of the code of social conduct,
and ensure that good citizens are protected from the negative consequences of the
law-breakers.
The object of the social codes of conduct is to maintain, promote, and elevate
harmonious relationships. ‘Honour your parents’ is one such code. It maintains a
peaceful relationship between parents and children and promotes respect for each
other in the family. Because of its salutary effects, it is considered as one of the funda-
mental values to be cultivated.

CLASSIFICATION OF ETHICS
To have a clear picture of the structure of the concept of ethics, the above discussion
can be brought under three headings: normative ethics, applied ethics, and meta-
ethics (see Fig. 1.1).
Normative ethics Norms or standards are also known as values or codes. Norms
set clear guidelines for social interaction in a community. Normative ethics is a subject
of study wherein students study moral standards. These moral standards can be applied

ETHICS
Systematic study of moral conduct

Normative ethics Applied ethics Meta-ethics

Study of moral standards Study of special issues— Cognitive study of the ultimate
to determine right business ethics principles of ethics, their origin
and wrong and meaning
Scope: Specific human action
Scope: General moral science Conceptual scope: Philosophy

Fig. 1.1 Classification of ethics

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 Ethics: Meaning, Definition, and Scope 9

to human actions to judge their moral character, that is, whether they are right or
wrong. Examples of some of the moral standards are utility, duty, conscience, use of
right means for right ends, justice, prudence, and stewardship. Just as there are several
standards to measure distance, such as meter, yard, mile, etc., so also there are several
standards to judge an action right or wrong. We shall study more about these standards
in the chapters that follow.
Applied ethics Business ethics comes under the classification of applied ethics
because it concerns itself with the special application of ethics to problems relating
to a definite field of human relationships. Normative standards of moral judgment are
applied by business managers to the business decisions they take. The ethical element
is part and parcel of the integral process of decision making on a business manage-
ment problem. Business ethics, therefore, deals with the application of normative
standards to specific business experiences. The study of business ethics is as essential
for a businessman as the study of professional norms for a medical practitioner. We
expect a doctor to diagnose correctly so that the right medication is given. There are
chances that he could diagnose a simple ailment but report it as a serious one in order
to exploit the patient financially. Likewise, a client places trust on a businessman for a
transaction and hopes that the latter does not deceive. Thus, applied ethics is strictly
professional ethics.
Meta-ethics The Greek word meta stands for beyond. Thus, meta-ethics literally
means beyond ethics, suggesting an in-depth study of the discipline. In other words, it
is a scientific study of the concepts of ethics in itself. You may not find these concepts
practical, because nowhere in the world will you find a perfect human being who is
perfectly good, perfectly happy, perfectly duty-bound, and so on. These are abstract
ideas that are considered as supra-standards, and are concepts that can be conceived as
perfectly as perfection itself. We study these concepts as ultimate principles—principles
such as good and evil, right and wrong. We study them just the way we study theoretical
physics when dealing with the principles of gravitation, energy, or light. The character
of these principles is universal in nature. For instance, if we handle ‘duty’ as an ethical
principle, it would be applicable as a standard of ethical judgment in all the cases of
duty. Hence, meta-ethics is a study of the general principles that govern right and
wrong human actions.

APPLICATION
The relevance of ethics is in its application. Just as when we study the theory of relativity
in physics, we ensure that the laws or principles of relativity are applied to the factors
and elements being considered, so too in our study of ethics, the universal principles
have to be applied to individual contexts and situations. We have to abandon the
absolutism of universal principles. For instance, killing a man is wrong. But we approve
the killing of the enemy in a war and the government honours the act with medals for

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10 Business Ethics

bravery. This is due to the fact that such an act has served a higher principle, that is,
the protection of countrymen. Ethics, in the practical sense, is also known as moral
action and is an applied discipline that deals with a particular human action and also
assesses to what extent it is compatible with the general principles.

BUSINESS ETHICS
Business ethics concerns itself with adhering to the social principles of the situations
in which business takes place. The analysis of this definition leads us to the following
discussion.

Business for Profit

It would seem that business ethics does not come within the confines of ethics. As
Adam Smith (1779), the father of modern economics says: ‘People of the same trade
seldom come together, even for merriment and diversion, but the conversation ends
in a conspiracy against the public, or in some contrivance to raise prices.’ People find
mechanisms to generate the highest possible returns when conducting business. No
one holds it against a worker for demanding higher wages, or a landlord for increasing
the rent. Their actions are not considered illegal or unethical. Profits are the just wages
for invested capital and entrepreneurship. Hence, these should not be resented and
should be left alone outside the boundaries of ethics. Business is for profit; the just
reward for doing business lies in the excess returns received on the investment.

Inspiration: Parental Lesson

Origin of the moral world

‘Your visit is enough for me to get well. Why bring a
doctor and spend money on his fees?’ This was the
gentle rebuke of the aged father of A.P.J. Abdul Kalam,
the father of Indian missile technology and the former
President of India, whenever Kalam visited his house
along with a doctor. When his father died at the age of
102, a heart-broken Kalam reflected: ‘He was a plain
and transparent man. My father pursued the supreme
value—the Good.’ His mother died soon after. He felt
that he should have taken time off from his work and
the preoccupation with technology to take care of his
old parents. But when he visited a mosque, a quiet
reflection there made it clear to him that his parents
Source: A.P.J. Abdul Kalam with Arun Tiwari, Wings of Fire, pp. 85–86.
had, in fact, achieved their highest accomplishment,
while he had still a long way to go. ‘The next morning,’
he writes, ‘I was back at Thumba [the space centre
situated in Kerala], physically exhausted, emotionally
shattered, but determined to fulfil our ambition of flying
an Indian rocket motor on foreign soil.’
Questions
1. Are parents, family, and others a good source of
moral values?
2. Is ethics all about positive attitude?
3. What do you understand by good?

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 Ethics: Meaning, Definition, and Scope 11

Again, as Goethe (1809) said: ‘Everything which is properly business, we must

carefully separate from life.’ This is because business requires definite strategies; life
must be led in freedom.

Business with Ethics

No matter how hard one tries, it is impossible to separate life from business. For a
businessman, business is life. Mahatma Gandhi (1948) said, ‘It is difficult but not
impossible to conduct strictly honest business. What is true is that honesty is incom-
patible with amassing of large fortune.’ The business world is an important part
of society, as it is concerned with the livelihoods of people. Business activity too is
subjected to the code of conduct without any exception. People expect businessmen
to possess the same rationality as any other citizen. Therefore, there is no separate
business ethics for businessmen, as ethics applies to all the activities of people. Conse-
quently, we have to keep business within the bounds of ethics.

Character of Business
‘There are two fools in every market: one asks too little, one asks too much,’ so says a
Russian proverb. Is there a concept called balanced profit? The business in a society
reflects its character. Transparency International, in its corruption perception index,
gives Finland, Denmark, and New Zealand the first place with 9.4 points. India is way
down at 72, with just 3.5 points on a scale of 10. We may gloat over our cultural
heritage and religious and ethical glories of the past, but we stand exposed before the
world as a corrupt society. Corruption prevails in all walks of life, whether political,
social, or economic. If we have to improve our business, we have to improve our
business behaviour.

Professional Ethics
The aforementioned discussion may be understood through the following distinctions:
ethics and business ethics. We have studied the distinction between normative and
practical ethics and have established that business ethics comes under practical ethics
and is applied to a particular activity.
Just as a society functions on the social codes of conduct and a country is governed
by its constitution, a business is run on corporate codes. In other words, there is a
professional code of conduct for any business. These codes keep evolving as other
things around evolve and develop. Therefore, not only should business be defined
within the confines of ethics, but it should be practised strictly under its own professional
code of conduct. This distinction helps to orient the general principles of ethics and
business to a particular activity. The principles, however, do not change. For instance,
there is a manager who is doing very well in his career because he is both efficient and
honest. To his neighbours and friends, he is not only a very successful businessman,
but also a very good family man. To a question asked by a journalist on how he divided

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12 Business Ethics

Compensation
Competency

Character

Fig. 1.2 Professional characteristics

his time between his family and business despite his busy schedule, he replied,
‘Efficiently.’ ‘What is the secret of your success?’ asked the journalist. He replied,
‘Honesty.’ The journalist looked inquiringly as if to say, ‘Look, business and family
are separate.’ The businessman said, ‘Both efficiency and honesty work equally well
at work and at home.’ The character of a true professional remains undivided, whether
at work or at home. Our roles may change from time to time and from place to place,
but the integrity of our character should be maintained.
Business ethics, thus, professionally adheres to a code of conduct that is in accordance
with the normative principles. Further, it may be concretely stated that professionals
bear the following marked characteristics: (i) competency of educational qualification,
(ii) professional skills, and (iii) compensation (salary/remuneration, etc.). See Fig. 1.2.

NATURE OF ETHICS AS MORAL VALUE

Value-free Ethics
It would seem that business is an ethically neutral or value-free activity. In other
words, the only value business is concerned with is the monetary value. It is not in the
interest of business to mix ethical values. An ancient Arabic wisdom states, ‘Live
together like brothers and do business like strangers.’ Business should be kept free
from other social relationships and obligations. The only successful relationship that
exists in business is that of a vendor and a customer.
It is also said that ‘for the merchant, even honesty is a financial speculation.’ Indeed,
for a businessman every factor in the business is measured in terms of money. The
volatility that we see in the stock market is a clear example of the speculative nature
of business, which is directly proportional to the prevailing attitude of the people.

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 Ethics: Meaning, Definition, and Scope 13

Running on Trust

Successful ethics implies successful business

Jamsetji Tata founded Tata Iron and Steel Company
Ltd, popularly known by its acronym TISCO, in 1907.
Now it is just Tata Steel. It is one of India’s oldest
companies. Today, it is India’s largest and the sixth
largest steel producer in the world. It produces 28 million
tonnes of steel, employs 82,700 people, operates in 24
countries of four continents and has a commercial
presence in over 50 countries. What is the secret of its
corporate success?
Tata Steel is one of the few steel companies in the
world that is economic value added (EVA) positive. It
was ranked the World’s Best Steel Maker for the third
time by World Steel Dynamics in its annual listing in
February 2006. Tata Steel has been conferred the
Prime Minister of India’s Trophy for the Best Integrated
Steel Plant five times. Regarded globally as a
benchmark in corporate social responsibility, Tata
Steel’s commitment to the community remains the
bedrock of its hundred years of sustainability. Its
mammoth social outreach programme covers the
company-managed city of Jamshedpur and over
eight hundred villages in and around its manufacturing
and raw materials operations through uplift initiatives
in the areas of income generation, health and medical
care, education, sports, and relief.
It has been awarded Asia’s Most Admired Know-
ledge Enterprise award in 2003 and 2004.
Questions
1. What is the fundamental moral value of Tata
Steel?
2. Has ethics made any difference to the way of doing
business?
3. What are the benefits to an ethics-based company?

Source: http://www.tatasteel.com/default.asp.

Further, Adam Smith observes that the baker bakes and distributes bread not because
he possesses the virtue of charity, but because he wants to gratify his self-interest,
which is to earn his livelihood. An employer rewards an employee for his productivity.
Ethics is the last thing on the employer’s mind when disbursing the bounty.

Human Relations
In the aforementioned argument, it appears that the more you negate the union of
ethical values to business, the greater is the affirmation that it is not a value-free enter-
prise. All relationships are human relationships. Ethics is another name for human
relationships. One may well distinguish the relationship between two siblings and two
strangers with many good reasons. But what one is unable to do is to categorize one
relationship (between siblings) as human and the other (between strangers) as non-
human. It is, in fact, ridiculous to affirm that the relationship between a vendor and a
customer is not a human relationship. Business relationship is indeed a type of human
relationship.
Further, it is ethically not adverse to have self-interests involved. It becomes unethical
when such an activity is an outright exploitation of one’s personal interests. Being
ethical and unethical is a part of human nature and, therefore, it is the subject of a
systematic study called ethics.

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14 Business Ethics

Concept of Value-free Ethics

Nowadays, we are familiar with ‘sugar-free’ soft drinks, ‘caffeine-free’ coffee, and
‘alcohol-free’ beer. The concept of ‘value-free’ business ethics is quite appealing to
businessmen. It appears as though it may be pursued devoid of all rules within a
social vacuum. The concept of value-free ethics came to economics in a rather ironical
fashion. Ludwig von Mises, known as the father of the Austrian School of Economics,
proposed the pure theory of economics, stating that economic concepts are a priori,
that is, they are not dependent on experience, but are purely virtual concepts. The
concept of choice, for instance, is a pure concept. It is immaterial whether one chooses
water or wine, but the concept in itself is free of such particular elements. Hence,
choice is value-free (wertfrei ). Applied to ethics, it would mean that we should be able
to study the principles of this discipline, such as goodness, truth, justice, honour, etc.
in their pure form.
It is obvious that such value-free ethics, when understood in the right sense, leads
us to study meta-ethics or the fundamental principles of ethics as a pure science.
However, if we are to apply an ethical standard to such a study, it would be called a
pure study of values, not value-free ethics.

Ethics as a Principle
We have established that social evolution has developed definite principles of civic
behaviour, which have attained the status of principles. By principle, we understand
that something proceeds and depends on it for its cause. For instance, when you kick
a football, force is the principle that propels it into motion and the ball remains in
motion till the force lasts. In other words, the physical world functions strictly according
to the laws of physics. It is expected that people also submit their behaviour, both in
thoughts and in actions, to these principles. An action is valid as long as it reflects the
principle, just as the speed of the moving ball depends on the force it receives.
All moral actions are directed towards their object, the good, which is the principle
of all happiness. This is not only the sole purpose of our existence but our co-existence
with others as well. We cannot be happy alone; we can only be happy together. The
universal idea of the good is applied to individual instances. Individuals are good in
their own particular way, and are good in so far as they share the essence of goodness.
The universal good is a pure or general idea. It is formed through a process of
abstraction of the essence from individuals or particulars (see Fig. 1.3).

Business Ethics as Professional Code

Business ethics is not a pure science but a professional practice, and society expects
businessmen to abide by the principles of a civil society, just as it expects professionals
from other areas such as medicine, bureaucracy, politics, and sports to do so. Thus, instead
of a value-free business ethics, we have a value-loaded or value-based business practice.

© Oxford University Press


Good
father
Fig. 1.3
Commitment versus Competency
Goodbye Mr Chips
James Hamilton’s Goodbye Mr Chips, a heart warming
story of a simple school teacher, has become a classic
in English literature and has inspired generations of
professionals. Arthur Chipping was a simple school
teacher at a boys’ boarding school at Brookfield. He
entered the school service as a young fresher and lived
his entire life on the campus.
Chipping was not brilliant. He lacked the talent to
teach. He was the butt of jokes for the pupils, as well
as the teachers. The headmaster had to reprimand him
for not being able to control his class and use his
authority. Soon, Chipping earned the nickname Chips.
What redeemed him? He was quiet and shy, but
dedicated to his work. Although it was quite hard for
him, he performed his task with great dignity and
perseverance. He spent all his time preparing for his
classes. Nothing ever prevented him from his duty,
neither sickness nor adversity. Indeed, even upon the
death of his dear wife, he was in his class punctually,
as always.
Note: James Hamilton’s, Goodbye Mr Chips was published in 1934 and first adapted for the screen in 1939. Free ebook
available at http://gutenberg.net.au/plusfifty-a-m.html.
© Oxford University Press
Ethics: Meaning, Definition, and Scope 15
Good
manager
The Idea Good
of good teacher
Good
customer
Ethics as a principle
When he retired, he had nowhere to go. But then,
the school authorities did not want him to go anywhere
because he was not only a part and parcel of the school,
but they felt that he was the school. He had become
the identity of the school. During the war, when many
teachers left school to join duty at the front, he returned
to the classroom and the school functioned despite the
war. His old students and colleagues fell in the war
and it grieved him no end. Yet, he would stand before
the school assembly every morning and take the roll
call of the fallen soldiers to honour them. In his own
quiet and simple way, he instilled bravery and dedication
in the hearts of the young citizens of his country.
Questions
1. What makes a true professional, commitment or
competency?
2. What kind of employee would you prefer, capable
or loyal?
3. Do emotional attachment and professionalism go
together?
16 Business Ethics

LAW VERSUS ETHICS

Adequacy of Law
There is a compelling argument that the law can regulate human behaviour, that the
law is sufficient to regulate any professional discipline, and that ethics is not necessary.
The law of the land is for the citizens, and the rights of every citizen are enshrined in
the constitution of the country. Further, law has evolved through the legislative process
of the representatives of the people. There are regulations for running institutions in a
civil society. In addition to this, there are special provisions made for the business
community through acts that govern all business transactions—whether of individual
proprietors or of companies under business law or corporate law. These laws are
exhaustive and may be applied precisely in case of disputes.

Ethics as the Principal Cause of Law

The proposition that law is sufficient and that ethics is unnecessary is equivalent to
saying that cause is immaterial, but effect is everything. The fundamental assumption
is that man is a social animal. Society, a community of people, is a system that functions
according to its natural order or its environment, which is also called its ethos.
Just as every other human pursuit originates and grows within the bounds of a society,
business also originates and grows in a society. Business is an honourable profession,
just the way law, medicine, education, craftsmanship, engineering, and so forth are.
Ethics is that civil fabric that holds society together for a common goal, that is, to achieve
the common good. This is its essence. The common good is to be achieved through the
pursuits or vocation that each and every individual in a society follows. The achieve-
ment of each and every member of a society adds to the greater good of the community.
Ethics acts as an agent of approval and disapproval of the activities of its members.

Ineffectuality of Ethics

Murali, the manager of a hotel, signs a contract with
Seema, a singer, to perform twice a week for the next
two months. The rate per performance is Rs 2000. One
day, Seema absents herself without proffering any
reason. Murali cannot condone this behaviour that has
caused him personal anguish and loss in his business.
He wants to rescind the contract and demands
compensation for the suffered loss.
Solution by law
There is a twofold remedy for Murali: (a) Under the
Indian Contract Act (Section 75), Seema has clearly
violated her contract. Her employer has the right to
rescind her contract. (b) Under the same Act the
manager is perfectly within his rights to claim the
sustained financial loss.
Conclusion
Ethics is toothless. What would ethics do in such a case
when the deed is perpetrated and the damage is done?
Nothing at all! Thus, ethical values are just humble pleas
for good behaviour, while the law has the power of
enforcement behind it. The stipulated punishments are
clear deterrents. Moral persuasion is a balm to the
conscience that makes one feel good. The law, on the
other hand, makes sure that justice is done to the victim
and the perpetrator of the fraud or crime is suitably
punished.

© Oxford University Press

 Ethics: Meaning, Definition, and Scope 17

Business bashing
When business ethics is mentioned, it is assumed that its purpose is to chastise those
who are doing business. So now, in the name of ethics, cumbersome laws and regula-
tions have been enacted by the legislature and government machinery, codes by the
corporations, directives by the chambers of commerce, recommendations by the non-
governmental agencies, and edicts by the religious leaders. These regulations and
several other norms now contribute to the burdens of the businessman. It is no wonder
that many businessmen see these as the scourge of a businessman!

CONCLUSION
From the above debate, we are able to draw the following conclusions.
First, it is important to know the place a business and its management hold in
society. Business is a part of society, and everyone has a stake in it. Hence, it cannot
be allowed to do its own will, but it must do the will of the community where it
originates and grows. If society dies, business goes down with it.
Second, business ethics guides its practice, as people expect it to be done. The
objective of managerial decisions is to promote business and add to the shareholder’s
value without compromising the interests of any stakeholders in and of society. Practice
of good business ethics makes the businessman a thorough professional.
Third, the law is meant for those who trespass on the rights of others. The purpose
of the law is to protect the good from the bad. Hence, the law is for those who do evil,
to deter them from their activity. The greater the sense of ethical sensibility in a society,
the greater is the likelihood of achievement of the common good. Society makes
laws through its legislative organs to suit definite regulatory needs. The laws are also
repealed when they become obsolete. However, the ethical principle, the good, remains
unchanged and the values of justice, equality, prudence, etc. that follow from it also
remain unchanged.
Fourth, on the chapter mast we referred to two great philosophers: Frederick
Nietzsche—the German philosopher of late 19th century—and Sri Aurobindo. Indeed,
as the first one affirms, we do not find morality as a physical entity. We do not see it
walking around. Morality is about norms or values that are set by society to be followed
uniformly by its members. It is natural that it becomes a matter of debate, discussion,
and disagreement as to what constitutes the right behaviour and how to distinguish it
from the wrong one. Such a discourse among people on social behaviour leads to
various interpretations. Hence, according to the philosopher, there is confusion about
morals. We, however, feel that Nietzsche, in order to make this point, rejects the
moral experience that we undergo everyday in our lives. Anything that we experience
is a result of a thing or an event, both of which belong to the world of phenomenon,
the former to the physical and the later to the social.
Sri Aurobindo, on the other hand, alludes to the entire complex moral tradition of
India with just a single word, dharma. Dharma in Sanskrit implies duty. We often face

© Oxford University Press

18 Business Ethics

Contra Thought

WE DO NOT BELIEVE IN ETHICS

T
A
L
K

T
E
L
L

WE ARE AFTER YOUR MONEY!

Just for a change, imagine that Talk n Tell, a company that sells mobile phones, puts out this big billboard
hoarding.

the problems of moral choices within society. For instance, we have to choose between
leaving the family behind and looking for a job in the city, joining the army or looking
after our old parents, cheating a bit in business or suffering loss. Here dharma, the
traditional behavioural pattern that society has developed over hundreds of years,
guides us in our actions. We are able to make ethical choices based on the precedents
and thus discern our duty, which is, what we must choose and do.

Sex and Settlement

Downfall of a great manager

Infosys Technologies is a formidable name to contend
with in any part of the IT world, not merely for its prowess
as a leader in IT but also as a great corporation with an
enviable ethics track record. But records so pain-
stakingly created over a long period of time, with grit
and determination, can tumble down with one bad
example. As the new millennium approached and
the business institutions were worried sick about the
Y2K syndrome, Infosys was involved in an unlikely
scandal—a sex scandal.
Phaneesh Murthy was one of the directors of Infosys
and headed its operations in the US. After having
worked for almost a decade in the US, Phaneesh was
sued by Reka Maximovich, an employee of the
company, on grounds of sexual harassment and un-
lawful termination of employment. The matter became
too embarrassing for the company both abroad and at
home. Phaneesh resolutely refuted the charges,
but then resigned. The tipping point came when the
company agreed to make an out of court settlement for
$ 3 million. Battered by the law, the company learned
its moral lessons and put in stricter codes of conduct
for its employees.
Phaneesh, the brilliant professional from the reputed
Indian Institute of Management (IIM), Ahmedabad,
weathered the storm and got on with his life. He became
Contd

© Oxford University Press


Box Contd
the CEO of iGate, which had acquired and merged with
Quintant of Bangalore. A certain Jeniffer Griffith filed a
suit for sexual harassment against him for a sum of $ 8
million, which again went for an out of court settlement,
for a lesser amount.
Questions
1. Is it true that law is sufficient and ethics is not
required?
Source: http://timesofindia.indiatimes.com/articleshow/935032.cms and http://www.rediff.com/money/2003/jul/30igate.htm,
accessed on 5 April 2008.
SUMMARY
l The terms ‘morals’ and ‘ethics’ are used
synonymously.
l Ethics is a systematic discipline with basic
assumptions and well-grounded theories.
l Business ethics is applied ethics, a system of
professional ethics developed for business
executives to help in decision making.
KEY TERMS
Applied ethics Application of ethical principles
to a particular problem, e.g., business ethics.
Business ethics Form of professional ethics.
Ethics Academic discipline, also sometimes
applied to individual actions.
Good The object of ethics/morals.
Mental model A construct of concepts; may be
simple or complex.
Meta-ethics Study of pure concepts or principles
of ethics.
CONCEPT REVIEW QUESTIONS
1. Why should ethics be defined?
2. What do we learn through the classification of
ethics?
3. What is more important, ethics or law? Give
reasons.
© Oxford University Press
Ethics: Meaning, Definition, and Scope 19
2. Does being a competent professional ensure good
ethics?
3. Is the company’s ethics record a dependable
intangible asset?
4. Is there a need to train professionals in ethical
behaviour?
l We learn our basic ethical values from our
parents, educational institutions, and society.
l Industrial establishments like the Tata Steel
inspire business students in their profession to
be responsible to society.
l The ethical principles are worth upholding
even in extreme adversity.
Morals Human action that may be judged as
good or bad, ethical or unethical.
Particular Individual instance where a universal
idea such as the good is applied.
Principle A basic truth or law or assumption.
Professional ethics Specific application of the
principles to a particular, specialized occupation.
Universal General mental model of a quality,
abstracted from particulars, e.g., good.
4. Why is the subject of ethics seen negatively in
the context of business?
5. Can ethics be taught? Explain.
20 Business Ethics

CRITICAL THINKING QUESTIONS

1. What is the meaning of learning a lesson from (ii) All act unethically.
an incident? (iii) More act ethically but some unethically.
2. What is the meaning of teaching a lesson when 4. How would you apply the concepts of ‘relative’
you are angry? and ‘absolute’ to ethics?
3. Describe a scenario where
(i) All act ethically.

FURTHER READING
Amartya Sen, On Ethics and Economics, Oxford, Basil Blackwell, 1987.

C ASE S TUDY
A Matter of Principle*

Important principles may and must be inflexible.

—Abraham Lincoln

Mid-December 2005 was a shocker to the work-
ing women of Bangalore, the IT capital of India.
Pratibha Shrikrishnamurthy, an employee of the
HP GlobalSoft, was raped and murdered allegedly
by a driver of the pickup vehicle, who was on un-
authorized duty.
There is blanket ban on night shifts for women
in Karnataka. IT and ITES women employees are
exempted from such shifts. It is mandatory for the
concerned companies to provide a two-way trans-
portation for its women employees, along with a
security guard. The provision of the security guard
had to be changed due to a representation given
by the concerned women, about their anxiety
that the security guard himself could be a security
hazard. The notification in the official gazette
accordingly changed the provision of a security
guard to ‘adequate security’. The companies were
now responsible for providing security for their
women employees, as they deemed fit.
On the fateful night of 13 December 2005, or
rather in the early hours, Pratibha was picked up
by a certain Shivkumar, supposedly a newly ap-
pointed driver. As per the company rules, she was
supposed to cross-check with the 24 × 7 help desk
of the company, whenever a new driver came to
pick her up. The victim, however, was taken in
easily by the company procedure that Shivkumar
followed, who promptly gave a blank call to her
office on her mobile. The company now refuses to
accept that Shivkumar was their authorized driver.
As per the law, the company gave the next
of kin, Gowramma, the mother of the deceased
employee, the usual statutory payments and further
conferred on her a range of benefits on compas-
sionate grounds—a onetime payment of Rs 11 lakh
and a monthly annuity of Rs 15,000, for the rest of
her life.
Som Mittal, the CEO of HP GlobalSoft, had
to contend with the complaint by the labour
department of not providing ‘adequate security’.
Under the Karnataka Shops and Commercial
Establishment Act, Section 25 read with 30(1),
Som Mittal had to pay Rs 1000 only as fine, for not
providing ‘adequate security’. Som Mittal refused
to pay. It is two years since the case was registered,
and Mittal is fighting it out in the Supreme Court
of the country.
The motive for taking the petty matter of hav-
ing to pay the fine of Rs 1000 to the highest court
in the land, purportedly has huge consequences.

* Source: Various newspapers. It is an ongoing case and has not come to a conclusion.

© Oxford University Press


Mittal is presently the president of Nasscom and
would like to prove it as a test case for the corpo-
rates. His contention is that a CEO cannot be held
criminally responsible for the said security lapse.
Mittal feels that he has a strong and infallible case.
But the Supreme Court has declined to go into the
merits of the case. Consequently, Mittal has to go
back to the Metropolitan Magistrate’s Court in
Bangalore and give a reason for not wanting to pay
the fine and close the case. There is apparently a
convincing clause in the Karnataka Shops and
Commercial Establishment Act, Section 3, which
states that ‘nothing in this Act shall apply to (among
others) a person occupying positions of manage-
ment in any establishment.’
Mittal wants to prove that in the outrage of
the aftermath of the rape and murder of his
employee, the labour department went overdrive
in implicating his role in the case as the CEO of
the company.
Discussion Questions
1. Has this case anything to do with ethics?
2. What are the principles at stake?
3. Who are the primary stakeholders in this
case and what is their relationship to each other
vis-à-vis this case?
E THICAL D EVELOPMENT P ROGRAMME
I. Acquaint yourself with a company through visits.
Communicate with the managers and employees
and make a report on how well the company suits
society.
II. Write a letter to a close relative and explain
why you want to become a manager. State your
ultimate goal in life.
III. Ethics Quiz
Manager’s Everyday Ethical Judgment
This quiz consists of two parts: Part I is about the
manager as a public person and Part II is about
the manager as an individual. When you have
completed the quiz, be honest with yourself and
compare your attitudes as a manager and as an
individual. If there are discrepancies, then you
would be termed as a person with double standards.
© Oxford University Press
Ethics: Meaning, Definition, and Scope 21
4. How are law and ethics related?
5. How worthwhile is it to salvage one’s non-
implication in a case in this manner?
6. How would you deal with the ‘aftermath’ or
the ‘public sympathy syndrome’?
7. Can you identify where the public sympathy
syndrome affected the outcome of the case?
8. Does public opinion count in ethical judg-
ment?
9. What would you do differently than Mr Mittal,
the CEO?
10. How should corporations conduct themselves
with government departments?
Going Further . . .
l Play act the case (try to get into the skin of the
characters).
l Assume that you and your group are HP
GlobalSoft employees. Discuss this case.
l Now, discuss the case as though you were the
management team of HP Globalsoft.
l What will your stand be if you are a director
in this company?
If there is harmony, then you would be called a
person of integrity.
Part I—Manager as a public person
1. You represent a company that supplies woollen
cardigans. One of your best customers places
a very large order. Your natural instinct would
be to tell him to be more realistic, since the
company’s record of supplying adequate
material is limited. You stop in your tracks
because with such a bulk order your commis-
sion is going to soar. What would you do?
(a) You take the order because you think that
there is no reason why the company can-
not actually supply the stuff.
(b) You warn your customer about the prob-
lem and let him decide on a realistic
volume of the order.
22 Business Ethics
(c) You dissuade the customer and refuse to
take the order because you do not want
your longtime customer to suffer any
undue business loss.
2. You are a junior manager, with a staff of twenty,
in an IT firm. You are happy that your staff
comes and reports practically everything to
you, including the juicy gossips. There is this
young lady who is an extrovert. She comes
over to you and gives an eye-witness account
of her colleague’s romantic involvement with
your senior manager. This opens your eyes to
the deferential attitude your senior shows to
her colleague, for there is some hush-hush
information that the lady in question would
be duly promoted. What would you do?
(a) Report the relationship to the higher
authorities.
(b) Tell your informer to mind her own
business, since this is a private affair.
(c) Tell your boss about the rumour of his
affair with your office staff.
(d) Do nothing.
3. You are the general manager of a company.
Your best friend’s son is in your organization
and is an upcoming middle manager. When
he meets you, he tells you excitedly that he is
going to buy a new apartment. He is confident
that with the kind of money he is earning, he
will be able to pay the loan in monthly install-
ments. But you know from the board of direc-
tors that he is one of those who would have to
be retrenched very soon. What would you do?
(a) You tell him about the retrenchment.
(b) You warn him not to go ahead with the
apartment loan, since something unpleas-
ant will take place, which you cannot dis-
close.
(c) Tell his senior manager to guide him,
dissuade him.
(d) Do nothing.
4. You are on the board of directors of a company.
At a board meeting, the CEO mentions an
anonymous letter that was written by an
employee about the irregularities in financial
disclosures. He also informs the board that the
© Oxford University Press
matter was submitted to the external auditors
of the company and they ruled that there was
no truth in the allegations. The CEO moves
to the next item on the agenda. What would
you do?
(a) You are disturbed by what is going on. Yet,
since the issue is resolved by the auditors,
you let it pass.
(b) You decide to ask the CEO privately for
more clarification.
(c) You intervene during the meeting and
demand an explanation and even ask for
a separate committee to be formed to in-
vestigate the issue.
(d) You take it upon yourself to employ
another independent auditor.
5. You and your friend have just been placed in
the same company after your MBA. Both of
you have been assigned a project. Whenever
you go to your friend’s cabin, you find him
surfing pornographic sites on his computer.
What would you do?
(a) You say nothing.
(b) You join him and give him company.
(c) You tell him not to waste the company’s
time and your time, but concentrate on
the project at hand.
(d) You tell the superiors.
Answers
The answers given here are typically not the only
answers in ethics. They use simple common sense
judgment. However, these are very close to the
optimum balance.
1. (b) Communication, complete and transparent,
is the key to relationship building. It also prevents
misunderstandings.
2. (a) Reporting to the higher authorities may be a
better choice if you would like to avoid any con-
flict in the future. This is because a senior is in-
volved with a staffer. This could lead to a conflict
when certain decisions would have to be taken.
For instance, your senior asks you to fire a senior
staffer instead of the lady involved. Further, there
is a conflict of interest, because the senior has
already informed his lady love quietly to move an

application to fill in the post that would be left
vacant due to the dismissal.
3. (c) This is a catch 22 situation, where if you tell,
you and your company are damned; if you don’t,
you and your friendship are damned. If you take
recourse to the first two options, these may lead to
a considerable loss to the company. Since the
middle manager is likely to spread the news, there
could be a big stir and everyone would stand to
lose. His senior manager could shed more light on
the situation of his job and workout a plan that
would eventually save the middle manager. Thus,
a concerted effort is recommended.
4. (c) The first option to let it pass is highly unethi-
cal for a board of directors. Yes, one may speak to
the CEO later, but what good is it going to do to
the company. Your duty, therefore, would be to
use your right to intervene and demand inquiry.
This action will save your company from the
cunningness of its highest officer and institutional-
ize the value of accountability in the organization.
5. (c and d) Since you find that he is doing some-
thing wrong for himself morally and since you are
his friend you could admonish him. However, you
could be more practical by saying that this behavi-
our of his is coming in the way of your project and
that it is unfair that you alone should bear the major
burden of the work. If he continues in his habit
then you have a duty to tell the superiors thus,
not letting your friend’s behaviour to ruin your
project and your career.
Ratings
All five: Excellent; Four: Very good; Three:
Satisfactory
Part II—Manager as an individual
1. You are financially sound. Your friend comes
to you for some help. You do not want to
jeopardise your friendship by declining to help,
but at the same time you do not want to part
with your money.
(a) You direct him to another common friend
who is known to have money.
(b) You say that presently you do not have
the money, but will do the needful as soon
as possible (wishing that in the meantime
he will solve his problem and not return).
© Oxford University Press
Ethics: Meaning, Definition, and Scope 23
(c) You will tell the truth why you cannot part
with the money.
2. You have a friend who has bought a new dress
and wants to know your opinion. Frankly, you
do not like it and you know that if she wears it,
the entire class is going to ridicule her.
(a) You say that it is unusual, thereby suppress-
ing what others may say about it.
(b) You ask her whether she could not find
something else, thus putting a question
mark on her choice.
(c) You give her an honest opinion and tell
her what you think of the dress, thereby
suggesting that your opinion is indepen-
dent of what your friendship consists of.
3. You are at a store where you have bought
several articles. The billing assistant has missed
a costly item.
(a) You just pay the bill as it is and go.
(b) You tell the billing assistant that an item
has been omitted and correct the bill.
(c) You tell yourself that the money not inclu-
ded in the bill will be given to a needy
person.
4. You find a person lying on the road, unat-
tended to by passersby, after being hit by a
speeding vehicle.
(a) You also pass by.
(b) You feel guilty for not helping and later
write a letter to the editor about the apathy
of the people against their fellowmen.
(c) You call the police and ambulance service
and wait till they arrive.
5. You see that your colleague who is sitting next
to you in a conference is busy on his computer
surfing the Internet during the proceedings.
(a) You ignore the matter.
(b) You tell him to stop it and not distract other
participants.
(c) You join him by subtly encouraging him
with your whispered comments and soft
giggles.
Answers
1. (c) Telling the truth plainly earns respect. Circum-
vention makes one lose trust and costs friendship.
24 Business Ethics

2. (c) Dress, fashion, etc. is a matter of opinion. By 4. (c) If you want to prove to yourself your sense
giving your opinion you are not only honest to of morality, this is the one.
yourself, you do not force others into it. Your friend
5.(b) The earlier you convey to him to stop, the
will appreciate your sense of judgment.
better it is for everyone, including yourself.
3. (b) Anything other than paying up will result in
Ratings
stealing. Option (c) is quite tempting; but it is wrong
All five: Excellent; Four: Very good; Three:
to steal from one and give to another.
Satisfactory

Note: Make this quiz a personal charter and not another test to score better.

Management Mantra
The Interview
A company advertised for a job. Two men were selected for the interview. The first man opened
the door and came in. His profile showed brilliant credentials. When the interview was over, he
walked out through the door that he had left open. The following day, the second man was called
in. He opened the door, stepped in, and shut the door behind him. His credentials were not very
impressive but the employer gave him the job instead of giving it to the man who was better
qualified. The reason being that the first man could not care less to close the door behind him.
This showed that he was lazy and careless and lacked ethics or the customary courteousness. The
second man, however, shut the door behind him. His actions demonstrated his awareness of what
was going on around him. Moreover, he behaved ethically.

MANTRA Priority is given to a conscientious person—somebody diligent and thorough,

guided by own sense of ethics. Skills, on the other hand, can always be learnt on the job!

© Oxford University Press